High Col Allowances Cause Another Round of Price Hikes

Record high cost-of-living allowances to Israeli workers, effective this month, will produce still another round of increases in consumer prices, economic experts asserted today. Those increases, they added, will almost certainly lead to another hike in cost-of-living allowances toward the end of this year, posing the likelihood of continuation of a “vicious circle” of consumer price rises spurring wage increases with no end in sight.

The experts cited a decision by Commerce and Industry Minister Haim Barlev accepting the claims of both private and Histadrut-owned industry spokesmen that they could no longer absorb the increased costs of production stemming from the impact of the cost-of-living allowances. Barlev said he would instruct the Prices Committee to recognize the allowances as a factor in the increase of prices of industrial products. The result will be a general increase in the prices of industrial products.

The unparalleled high level of allowances paid as of this month resulted from the impact of world price changes, the government’s decision to cut off subsidies for consumer goods and various other monetary decisions of the government. In the past, Industry has been able to absorb the increased allowances because increased productivity has followed each wage rise. This time, however, industry spokesmen told Barlev, the new allowances and related expenses amounted to a 40 percent increase in wages, accounting for 20 percent of their production costs which they could not absorb.